Q & Roger – I agree. It is obvious it is overnight rates, if people
read the article. That’s what the Bloomberg article states and what I mention. My point, perhaps I did a lousy job conveying, is that people should be on alert. The Bloomberg article clearly states that they are referencing the overnight rates, including my remark. The Bloomberg article raises the clear potential implications for ARM note holders with a LIBOR index. Spreading fear? LOL. Oh ‘come on.

I enjoy keeping people abreast of what may impact their financial well being. Blogging is one of the very few any of us have of making a positive impact on some consumers. My wife and I have received some nice e-mails from consumers who say so, even though they may have used another service. Once consumers open escrow and get to the closing table, it is often too late in the game to make financial decisions without pressure.

Perhaps I should have bold typed ‘overnight’ and ‘may’ pressure ARM’s. Let’s hope that the overnight spike does not translate into the complication that Fleckenstein suggests. Speculation is why we are where we are. I don’t spread fear or rumors that can take a company down. My intent is to state information or take up topics that is useful for consumers and hopefully get a few people to make a sound financial decision that will foster a sound market. There are quite a few transactions our office has closed with LIBOR Index terms. Quite a few. And many of them should be receiving market updates from their loan officers, but I suspect are not.

Lehman and AIG are a bigger problem because a lot of financial institutions maybe exposed to CDS sold by them. If they bought some CDS from Leh/AIG and they are in the money, bankruptcy may wipe out those gains. Probably why institutions are hesistant to lend overnight – waiting to see what the impact will be.

thanks, Q.

So true, shoulda been obvious. No ARMS I know reset on the “one day” LIBOR.

There are still real monsters in the financial closet (Lehman, AIG, ???).

This ain’t one of them, at least not yet. These days it’s hard not to jump when a fake one says “BOO”.

“I think you may be right. This could be a temporary situation, only affecting those mortgages that are adjusting right now, not in the near term future, as this may get sorted out soon.”

My point was, the resets are not based on OVERNIGHT rates. They are based on something longer like 12 months in your example and the 1-12mth part of the curve have not seen the spike.

1Mth-12Mth LIBOR today is pretty much the same as 2004 and 2005-2006 LIBOR were both higher. You’ll see that there isn’t much of an impact if their rates do reset.

What’s happening in the O/N market hasn’t spread to the rest of the curve yet and I think it’s just speculation to say that it will.